HDFC Low-Income Co-ops: The Last Gasp of Affordable Housing?

By Bill Morris

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When Andrew Reicher arrived in New York in the 1970s, the Bronx was burning and the Daily News summed the president's attitude toward the teetering city with the famous headline "Ford to City: Drop Dead."

"New York then was abandonment – vacant buildings, burning buildings," recalls Reicher, who left architecture school in California to join up with the fledgling Urban Homesteading Assistance Board (UHAB), which has help turn over 1,000 derelict buildings into low-income co-ops. Today he's the executive director, and confronting a very different problem: More and more shareholders in those co-ops are selling out for prices unimaginable a few years ago, shrinking the city's precious stock of affordable middleclass housing.

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"Now," says Reicher, "the tide washing across these neighborhoods is gentrification. The Lower East Side is one of the most valuable neighborhoods on earth. Even the Bronx has real market value. You're seeing displacement not from abandonment but from gentrification."

Great Expectations

The 57-year-old Reicher (below) speaks from personal experience. For the past 30 years, the UHAB director has lived in a Lower East Side co-op brought back from the brink of ruin by a core of determined residents. They turned the building into what is known as a Housing Development Fund Corporation (HDFC) co-op. The HDFC buys distressed buildings from the city for a nominal fee, then offers the shareholders breaks on the transfer tax, mortgage-recording tax, city and state income taxes and property tax.

Also known as "Article 11" co-ops (for the relevant section of the Private Housing Finance Act), they're only superficially similar to subsidized, middle-income Mitchell-Lama co-ops. The latter are regulated and administered under strict city and state statutes, whereas low-income HDFC co-ops are solely a city concern. If there are any formal limits on the shareholder income or the prices they can fetch when selling out, those limits — spelled out in the certificate of incorporation, the bylaws or the proprietary lease — vary from building to building. Sometimes they don't exist at all, or aren't enforced by the city.

To low-income housing advocates, "it's a significant problem," says Ann Henderson, UHAB's associate director for co-op preservation. "What happens is that the people who want to sell for a lot of money say, 'You can't stop me.' Those forces are strong. And once the barn door is open, you can't close it. Before long, we're going to have a crisis of no affordable housing in this city. In fact, I'd say we already have one."

As a result of UHAB's efforts, which include training residents how to create and run a cooperative corporation, more than 25,000 apartments in once-decaying buildings now belong to healthy co-ops. An additional 238 buildings currently operate under a Tenant Interim Lease and will eventually join the rolls.

But during the reign of Mayor Rudolph Giuliani, the city got out of the landlord business. After taking over a derelict building, the city now does a "third-party transfer" to either a nonprofit group like UHAB or to a for-profit developer. Through a "tenant petition" process, residents are able to choose whether to remain renters or become owners.

Though market forces and city politics have changed radically in the past 30 years, Reicher doesn't believe the supply of delinquent buildings will ever dry up completely. "There are always buildings where landlords haven't paid taxes, met the mortgage or kept the buildings in good repair," he says. "There doesn't seem to be any end of them. These buildings may be failures, but we see them as opportunities for buildings to become affordable HDFC co-ops."

The question is whether market forces and human nature will allow that to happen.

Hard Times

Ellen Covas knows a thing or two about it. She moved to Williamsburg, Brooklyn, in 1982, long before the neighborhood became a hipster hotbed. The city had recently foreclosed on her seven-unit building at 789 McDonough Street (below) as part of the wave of late-'70s foreclosures.

Covas' apartment rarely had heat or hot water, sewage routinely backed up in the basement, and drug dealers worked openly on the street. But the residents were working together to save their homes, and Covas stuck it out. Two years after she had moved in, the building completed its transition from slum to self-sufficient Article 11 co-op.

"It's not meant for rich people," says Covas, who notes there's an elaborate formula in the bylaws for determining the acceptable income level of prospective buyers. There is, however, no limit on resale prices. That may sound like the co-op has a split personality, but it's simply feeling its way in the absence of guidelines on maximum tenant incomes and maximum resale prices.

Conversely, a few miles away, in the Bedford-Stuyvesant section of Brooklyn, Emma Oliver presides over a 41-unit HDFC co-op board that stipulates both maximum shareholder income and maximum resale price.

"We have income limits we have to abide by," says Oliver, 74, a retired nurse now on disability. "We also set a limit on what shareholders can sell for" — $3,000 per room to an inside buyer and $6,000 to an outside buyer.

Learn From The Best

Choosing a management company for your co-op or condo involves factors even experienced board members may not immediately realize.Thomas Thibodeaux, CFO, and Peter von Simson, CEO, of New Bedford speak with Habitat publisher Carol Ott about questions boards should ask.

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